Debt Payoff Methods
Let's Cultivate (W)health
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Let's Cultivate (W)health 〰️
There are three different ways to pay off debt that we are going to break down today. As I've said before, this is another personal decision for you. The beauty of personal finance, I know!
All I can do for you is provide the information about the different approaches, so you can choose the best one for you! These all suggest making the minimum monthly payments on all debts, then tackling payoff in different ways based on what you need.
Snowball Method: Focuses on paying off debt with starting with the smallest amount you owe to the largest. This does not take into consideration the interest rates. This is a motivating way to approach debt since it will build psychological momentum, but it may not be the most mathematically sound. The extra money you are putting towards paying off the smallest amount first, regardless of interest, may increase the total interest you pay over time.
Avalanche Method: Focuses on paying off the debt with the highest interest rate first. This is the most mathematically sound approach and the least expensive way to get out of debt. This method won't give you the "little wins" the snowball method will.
Flood Method: This method is not as popular as the other two, but I thought I would share anyways. This approach requires paying a little more than the minimum on ALL your debts. It doesn't focus on paying one down then going to the next. This method won't minimize the interest you pay or give you the psychological motivation you may need. But hey, it's still an option!
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**disclaimer: this is not financial advice. this is only based on my experience. please always do your research.**
